Put This ‘Staple’ in Your Trading Diet (XLP)

Names in this ETF are known for holding steady in turbulent markets

Sometimes trading is difficult, and sometimes it’s actually quite simple. Lately, simplicity has ruled the roost, as buying just about any equity sector this year has been a winning proposition. Case in point is stocks in the consumer staples sector. Companies in this space are the sort that make the things that we all need no matter what the economy is doing, no matter how much money the Federal Reserve is printing, and regardless of what strings the politicos in Washington D.C. are pulling.

So, it should come as no surprise that an ETF pegged to the consumer staples sector has been a standout performer since the beginning of the year. That fund is the Consumer Staples Select Sector SPDR (NYSE:XLP), an ETF that reflects the price movement of its S&P namesake sector.

Click to Enlarge This fund gives you exposure to some of the best of the best big name consumer stocks around, including Procter & Gamble (NYSE:PG), Coca-Cola (NYSE:KO), Philip Morris (NYSE:PM), Wal-Mart (NYSE:WMT) and Pepsico (NYSE:PEP) to name the fund’s top five holdings in order (as of May 9).

As you can see by the chart here of XLP, the fund has gone virtually straight up in 2013, as year to date the share price has spiked more than 15% (as of May 13). That giant move outpaces the S&P 500, which is up about 12% year to date.

One thing I like about the XLP trade is that you are buying companies that traditionally do well (or at least hold their value) during tough economic times. What this means is that if economic metrics begin to contract significantly, we are much more likely to see this sector continue to move higher vs. a sector such as small caps or technology. When the going gets tough, a lot of capital will turn defensive, and that represents a bid in XLP.

Think about it this way, if a defensive sector fund such as XLP has done so well during this current bull move, then it’s likely to keep doing well if and when things get dicey. Either way, getting long XLP here despite the huge run higher could be a way to keep participating in this rally while also making sure you have a bit of a hedge when the froth in stocks settles.

At the time of publication, Jim Woods did not hold a position in any of the stocks mentioned here.

At 24/7 Trader, you have full access to some of the market’s most experienced and successful options trading experts, and you can connect with other options traders who are down in the trenches just like you.

Our options experts have seen it all, and they’ve backed up the truck in all kinds of markets. What better way to learn (and profit) than from someone else’s experience? Read More